HUNDREDS of billions of dollars will change hands this year if rumours of a spate of megamergers prove to be true. Some of the biggest predicted tie-ups are Glencore and Rio Tinto, SABMiller and its larger rival Anheuser-Busch InBev, and, further afield, oil giants Shell and BP.
The “GlenTinto” scenario has been around for a few years, but in October, Glencore announced it had finally made the call — and the idea had been rejected. The Swiss-based commodities conglomerate is run by South African Ivan Glasenberg, who owns 8.3% of its shares. Glencore took out a secondary listing on the JSE in 2013.
The company produces and trades about 90 products with a serious stake in agriculture and minerals. But its gaping hole is iron ore, which is Rio’s major cash cow. Glasenberg wants to fill the gap — and he is known for getting what he wants, as those who recall his relentless pursuit of Xstrata will attest.
Although he has been spurned at this point, speculation is that he has approached Rio Tinto’s biggest shareholder, Chinalco (the Aluminium Corporation of China), which has a 9.8% stake. The tie-up would create by far the biggest company in the industry, worth about $150-billion. To put that in context, consider that Anglo American’s market cap stands at about $26-billion.
One potential benefit of the deal would be the estimated cost-saving synergies of about $20-billion.
Still, pundits are divided on the potential for the deal going through, assuming even that the monstrous competition challenges from a range of countries can be scaled.
On the one hand, a GlenTinto scenario would benefit Rio by cutting its over-reliance on iron ore.
Glencore needs some kind of acquisition to supplement its declining asset base. However, any deal would be heavily weighted in Glencore’s favour — Rio would have to accept a zero premium fee, since Glencore will already be stretched to pay the fair value of between R633-billion and R689-billion.
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